We’ve got another take-private deal to follow, as Permira makes a play for a UK-headquartered service provider to the pharmaceutical industry.
Permira has agreed terms on a cash offer with the board of London-listed Ergomed, a service provider to the pharmaceutical industry headquartered in Guildford in the UK.
The offer price is £13.50 per share, valuing the total issued capital of the company at around £703 million ($888 million; €822 million). With a cash position of £26 million and lease liabilities of £2.9 million, that gives an enterprise value of £680 million – 24x Ergomed’s adjusted EBITDA of £28.4 million for the year ended 31 December and 21x the adjusted EBITDA forecast for 2023 of £32.4 million.
The offer gives a premium of 32.4 percent over the average price over the last three months, 32.7 percent over the last six months and 28.3 percent over Friday’s closing. Ergomed’s share price had jumped to £13.28 at the time of writing.
Justifying the offer, Permira said that Ergomed “is a differentiated platform in the outsourced pharma services sector”, operates in structurally growing markets, and believes the company is better placed to achieve its potential as a private company.
The Ergomed board unanimously recommended that shareholders vote in favour of the deal.
“We look forward to partnering with the Ergomed management team in accelerating Ergomed’s growth and fulfilling its vision of becoming the leading pharmacovigilance and rare disease clinical development partner to pharma and biotech clients to safely commercialise complex and often life-saving therapies for patients,” said Silvia Oteri, partner and head of healthcare at Permira, in a statement.
With the summer holidays over or nearly over depending on where you live in Europe (as luck would have it, just as we finally get some proper sunshine in London), you’d expect dealflow to start picking up – although there are not too many signs of a rush yet.
That could be down to there still being a valuation mismatch, one investment bank source told me. While sector leaders and top tier assets can still attract valuations not far off those of the heady days of 2021, the question is over where the ‘best of the rest’ should be priced. But that source was confident that once we see a couple of those such deals and the market finds a level, then a glut of deals should follow.
Ardian’s co-head of buyout Thibault Basquin certainly seems to think so, as he spoke to Nina Lindholm in the latest of our Q&As with leading dealmakers on the outlook for the second half.
What are you expecting in terms of dealflow in the second half of the year?
We expect that dealflow will pick up in H2 compared to the first half of the year. Following H1 earnings season, there is increased visibility for potential acquirers and lenders on how businesses are performing in the current market environment. This should result in banks being more willing to underwrite new deals, a factor which has been holding the market back in recent months. As the year continues, performance improvement and cashflow generation should also narrow the gap between original seller expectations and buyer appetite.
In terms of deal origination, we are expecting to see more primary investment opportunities in family businesses, in which we’ll work alongside the family-led management teams, and for carve-outs from businesses selling non-core assets.
What about key opportunities?
The current slowdown in dealmaking has allowed dealmakers more time to review prospective investments, and created space to buy at a balanced valuation entry point. However, the flipside of this is that firms need to be ready to hold assets for longer, in order to deploy full value creation programmes and achieve the optimal value at exit.
The breadth and depth of origination network is also critical for dealmaking in this current environment. Ardian has significant dealflow opportunities, originating from our sector expertise, the depth of our networks and our reputation as an investor. This allows us to be very selective in the investments we make.
Read the full interview for more of Basquin’s thoughts, including on the challenges ahead in the rest of 2023.